The following article discusses session two in the IR Global Virtual Series on 'The Business of Brexit: Implications for the commercial contract process'
Netherlands – NO The best approach for business to prepare for Brexit is to expect the worst and hope for the best. In this case, the worst means a hard Brexit. But what does that mean?
A clean break between the UK and the EU means that all current EU rules and regulations no longer apply to the UK and that the UK from then on is ‘a third country.’
For businesses in the Netherlands trading with the UK, this means that the UK will be in the same position as any other country outside the EU. For traders in the Netherlands, the effects are that goods will have to be exported from the Netherlands to the UK. This changes not only the formalities for customs and VAT and, if applicable, excised goods, but also other measures that only affect export of goods to a destination outside the EU. Goods may be subject to import duties and, if the EU and the UK do not come to terms on a free trade agreement, make them more expensive.
Likewise, UK businesses will have to take into account that the goods will either have to be imported and subjected to duty, or temporarily stored in a bonded facility. This is particularly important for UK businesses using distribution facilities in the Netherlands. Transport companies should expect less swift cross-border passing and therefore higher costs. A change clause is crucial for them.
If the goods are dutiable, trading partners will have to decide who will be the importer into the UK or the Netherlands and adapt their contract accordingly. Use of the Incoterm DDP means that the seller is responsible for import duty and taxes, which may lead to customs and VAT registration formalities and additional administrative costs. This Incoterm should be avoided in contracts unless parties are truly aware of the consequences and explicitly accept them.
Fortunately, the Netherlands maintains a favourable system of collecting VAT regarding the import. UK companies will be able to use the postponed accounting system for import VAT which removes the need to finance the VAT at import. Whether the UK will introduce a similar system remains to be seen.
England – RC The first thing I say to clients, is that they should be undertaking an audit of their contracts. One of the most important points to deal with, is to record which contracts extend beyond the transitional period, since they are the highest risk at this point in time and the ones that may need to be renegotiated.
I advise them to look at their IT applications with regard to security, and also to consider how Brexit might impact their trademark or patent strategy and the licensing of intellectual property rights.
The key areas to look at in a contract would be Force Majeure, territory, applicable law and price adjustment. They should compile a spreadsheet of their contracts to identify areas of risk and then tick them off when they are believed to be Brexit-proof.
This is bearing in mind, of course, that I don't think anybody feels entirely comfortable that their contracts will be Brexit-proof, other than allowing them to be terminated easily, if that's the only way to deal with it.
Germany – UB I think clients should consider two situations. One situation is where they have existing contracts and should look into loopholes under the Brexit and try to consider renegotiation. They should always try to find common ground with counterparts and look at the commercial impact of Brexit. if they have a new contract, they should always consider the worst-case scenario, in order to be well prepared.
Clients should also look at tariffs and exchange rates, including customs procedures, considering who should bear what tariff exchange rate, with reference to EU laws and territory. They should also put in arbitration clauses, because they can then be sure that this will be enforceable in the future.
No one knows what will happen, but there will be changes because of Brexit. We can all hope for a soft Brexit, but be prepared for a hard Brexit without any rules. It is important to be prepared and keep in contact with counterparts in Europe or in the UK, starting negotiations around what will happen.
Italy – PM I suggest to my clients to be ready to change, because I think that now it's difficult to predict the outcome of Brexit, especially for trade issues.
We have to wait until later in the year to see if there will be an agreement on future relations between the EU and the UK and, you know, the situation could be completely different by then. If, for example, the UK stays in a form of the Single Market similar to the Norwegian solution, the business environment will not change. On the contrary, in case of a no deal solution, every business relationship will need to be revised.
So, it's difficult now to make changes, but it's important to be prepared to change the business and any contract according to the situation. And, of course, also important to be ready for the worst situation, which is a Brexit without rules.
Spain – SL We don't know yet what really will happen, whether we will have a hard Brexit, a soft Brexit or whatever kind of Brexit.
I agree with Paola though, that we have to advise our clients that they have to be ready for a change. This is a very soft Brexit approach of course, but it must be stated clearly in existing contracts and future contracts.
We must express provisions on jurisdiction and provisions on applicable law which refer to the contractual statute and to the non-contractual statute. If this is done, then clients at least have a kind of umbrella in terms of all the clauses which may affect the relationship between parties in the case a future exit of Britain.
Of course, the commercial aspect is also very important. We can discuss the legal aspect, but we don't know what will happen on the commercial side.
So that will be very important for clients, as will a provision to perhaps agree on an express termination clause which is not only the general form of a MAC clause, but something more specific.
Denmark – AH Nothing concrete has been decided on the future relationship between Britain and the 27 remaining member states. However, there is still a lot of businesses should do to prepare themselves for Brexit.
This includes, keeping a close watch on the negotiations between Britain and the remaining EU member states, while trying to identify and anticipate the possible implications of Brexit on their company, their commercial relationships and their contracts.
They should also team up with a specialist adviser and get a service check on their current standard contracts, as a revision on some of the terms may already be needed.
They should also identify key or high-risk contracts and consider renegotiation or even termination where workable.
Contracts which were entered into before Britain's decision to leave the EU and fulfilled before the end of the transition period, would not be affected. Long-term contracts which were entered into before Britain's decision to leave the EU, and are to be fulfilled after the transition period has ended, may be affected and clients must therefore consider renegotiation or termination of such contracts.
Finland – LR Well must look at what the contract concerns, and what kind of legal regime it follows. In this context, it may not be possible to renegotiate, unless there are some provisions already included to that effect.
Obviously, there is a common interest for both parties to resolve a contractual issue, since nobody benefits from unfair trade relationships. Also, in the long run, the parties will probably be able to re-negotiate that contract, if it doesn't meet the mutual interest.
My thinking arises from the fact that, in the Scandinavian countries, we have a strong emphasis on the duty of loyalty, that is to say, a doctrine of good faith and fair dealing. Unfortunately, the UK does not adhere to that principle, as it is replaced by other techniques.
Malta – WSB We do need to see what contracts are in place and the timeline of those contracts, for instance when they end and their content. It may be also relevant to look into the areas which are clear and unclear and that possibly need to be changed. At that point we should be ready to adapt and change depending on the outcome of Brexit, it's more of a waiting game right now, preparing but waiting for the outcome of Brexit.
Switzerland – PR My advice to clients is to create a checklist of one’s agreed position on key contractual points, which can then be shared with all those entering into or agreeing arrangements with third parties on behalf of the business.
U.S – TT In addition to anticipating all the possible implications of Brexit on their business and re-evaluating the value of current and future contracts in light of those implications, businesses should actively engage in risk assessment, monitoring and mitigation efforts tailored to their particular business.
To do so, companies should develop or enhance internal mechanisms to enable them to maintain a heightened but practical focus on the post-Brexit impact to their business. This may include re-working an existing international trade compliance program and auditing framework. The compliance program and auditing framework should remain flexible in light of the uncertainties postBrexit, but effective to ensure that the company is empowered to act when the need arises. Internal auditing should assess the impact of Brexit on capital, credit and loan, cash flow, business costs, current contracts, and potential business opportunities.
International trade compliance programs should aim to familiarise personnel with the changes in EU and UK law. Companies should implement a responsive, user-friendly compliance process to prevent violations of applicable laws, and proactively show a commitment to compliance.
Sönke Lund (SL) Grupo Gispert – Spain www.irglobal.com/advisor/sonke-lund
Anders Hedetoft (AH) Holst, Advokater – Denmark www.irglobal.com/advisor/anders-hedetoft
Lauri Railas (LR) Railas Attorneys Ltd – Finland www.irglobal.com/advisor/lauri-railas
Robert Cain (RC) Blaser Mills Law – England www.irglobal.com/advisor/robert-cain
Paola Mariani (PM) Pesce & Associati – Italy www.irglobal.com/advisor/paola-mariani
Urs Breitsprecher (UB) AQUAN Rechtsanwälte – Germany www.irglobal.com/advisor/urs-breitsprecher-new
William Spiteri Bailey (WSB) RSM Malta – Malta www.irglobal.com/advisor/william-spiteri-bailey
Peter Ruggle (PR) Ruggle Partner – Switzerland www.irglobal.com/advisor/peter-ruggle-switzerland
John Wolfs (JW) Wolfs Advocaten – Netherlands www.irglobal.com/advisor/john-wolfs
Nico Ooyevaar (NO) McMAN Ooijevaar – Netherlands www.irglobal.com/advisor/nico-ooyevaar
Teresa N. Taylor (TT) Akrivis Law Group, PLLC – U.S – Washington, D.C. www.irglobal.com/advisor/nico-ooyevaar